BROKERS’ NOTES: Buy Prosus, sell Clicks

Mark du Toit, portfolio manager: OysterCatcher Investments

Buy: Prosus (PRX)

Prosus’s main asset is its shareholding in Tencent, which makes up 90% of Prosus’s value. Tencent recently reported its fourth-quarter results, which showed that earnings growth remains robust, with year-on-year operating profit up 26%. In addition to this, Tencent announced a step up in the final dividend payout to HK$3.4 a share and a doubling of the share buyback programme to more than HK$100bn in 2024. Tencent’s earnings growth is expected to continue despite a Chinese economy that is weaker compared to recent history. The superior earnings growth and growing revenue outside China are underappreciated by the market, creating the opportunity to buy. 

Sell: Clicks (CLS)

Clicks is a great company, but it comes at too high a price. Clicks trades at an earnings multiple of 26.4, which is 20% higher than even the well-loved Shoprite. Though earnings will continue to grow above South Africa’s nominal GDP, the growth rate will be slower than over the past decade. New store openings will slow and further market share gains will become more difficult to attain. As the earnings growth rate slows, the market will start to reprice the shares lower.